ACCC would look at Westpac-Lloyds deal: Sims

Rod Sims says there are “some issues around the car leasing, financing and point of sale areas” that the ACCC would want to look at if Westpac and Lloyds agreed to a deal over the UK-based firm’s Australian assets.
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Westpac Banking Corporation
will have to gain approval from the competition watchdog to buy $8 billion of assets from
Lloyds Banking Group
, putting a potential roadblock in front of its biggest acquisition since it ­swallowed
St George Bank
.

Westpac is expected to confirm reports as soon as Thursday that it will buy some of Lloyds’ Australian assets from its United Kingdom-based parent after the only other bidder left in the race,
Macquarie Group
, was told that it had missed out.

Australian Competition and Consumer chairman
Rod Sims
told The Australian Financial Review that if the deal goes ahead, the regulator would examine its impact on competition on the motor vehicle leasing and financing markets. “It is certainly something we will look at, there is no doubt about that," Mr Sims said.

“It is a reasonably concentrated market. We would want to have a look at it if that was to proceed."

Lloyds, which is partly owned by the British government following a taxpayer funded bailout during the global financial crisis, is looking to sell assets in Australia after four consecutive years of losses in this market.

The deal would be Westpac chief
Gail Kelly
’s biggest acquisition since an $18.5 billion takeover of St George in 2008. The decision to make Westpac the preferred bidder was revealed by AFR.com.

Capital Finance included

The assets up for grabs include ­
Capital Finance
, Lloyds’s motor and equipment finance division, which has $6 billion of assets under management, and a parcel of other loans worth another $2 billion.

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Capital Finance has a 20 per cent share of Australia’s leasing finance market.

If Westpac buys the Lloyds business, it will be the largest player in this field as the bank’s subsidiary, St George, already has a 25 per cent share of the market.

“If this is to proceed we would want to take a look at it," Mr Sims said.

“We do not have any detail in front of us at the moment on it, but there are some issues around the car leasing, financing and point of sale areas.

While Westpac has not commented, it is believed to have bid $1.7 billion for the Lloyds assets.

Mrs Kelly is understood to have made contact with her Lloyds counterpart,
Antonio Horta-Osorio
, and strategy head
Antonio Lorenzo
, after the process was whittled down to two potential buyers at the weekend.

Macquarie had also been in the running to buy the business but sources close to the vendor said it was informed of the British lender’s decision to go with Westpac on Thursday morning.

Macquarie’s offer had exclusions

While it is understood that Macquarie had offered a better price, its offer excluded certain loans, which may have led Lloyds to favour Westpac, which bid for the entire package.

The deal may signal a greater willingness by Australia’s big four banks to open their cheque books and make acquisitions to bolster growth.

The banks have avoided major acquisitions in the last few years because new global regulations required them to build up larger reserves of capital as a safeguard against a downturn.

But with capital reserves now at high levels, the big four may be more open to using their financial muscle to make acquisitions, particularly from inter­national peers that are still feeling the after effects of the global financial crisis.

Westpac is expected to report an annual profit of about $7.1 billion next month.

The Lloyds acquisition could provide the bank with a new growth avenue amid heightened competition in its key home loan market.

Westpac is the country’s second biggest home loan lender with close to a quarter of the market.

Losing ground in mortgages

However, it has been losing ground in mortgages over the past year to its big bank rivals, which have lower standard variable home loan interest rates.

Nomura analyst
Victor German
said Westpac had enough surplus capital at hand to afford the acquisition.

“Westpac has a reasonably sized leasing business, which they effectively picked up from St George, so there should be some synergies there," Mr German said.

“If Westpac do buy it, they should be the biggest in that market. It is still quite small, but Westpac may be able to get good returns from it. It depends on what price they pay for the assets."

The sale of Lloyds’s Australian assets has attracted keen interest as the persistently anaemic growth in credit markets forces the biggest banks into acquisitions.

As well as Westpac and Macquarie, a consortium led by
Pepper Home Loans
had also bid for the assets, but recently pulled out of the race.

ANZ withdrew last month

ANZ Banking Group
also withdrew last month after having been short-listed as a potential buyer, and there was speculation at the time that com­petition concerns may have influenced its decision.

ANZ-owned
Esanda Finance
has about 35 per cent of the leasing finance market.

The bidders were particularly focused on Capital Finance, given loan books of this size rarely come on to the market.

Macquarie has missed out on a number of loan books that have come up for sale over the past 18 months, including
Suncorp Group
’s $1.6 billion of secured loans which was sold to Goldman Sachs in June, and previous BOS International portfolios.

Lloyds is 43.5 per cent owned by the UK government. It’s Australian business posted an $148 million after-tax loss in 2012 including loan impairments of $411 million.

The group reported losses in Australia of $1.2 billion in 2011, $1.6 billion in 2010 and $858 million in 2009, mostly as a result of bad debts related to property loans in regional Australia and New Zealand.

According to financial accounts submitted to the Australian Securities and Investments Commission, Lloyds’ balance sheet in Australia shrank from $15 billion to $10 billion over the year to December 31, 2012, mainly because of sales of its commercial property loan portfolio and the run-off of legacy assets.

Its assets in Australia have fallen from a peak of $30 billion, which was reached when it moved aggressively into the commercial property sector in the lead-up to the global financial crisis.